After weeks of speculation, Apple pulled the trigger Wednesday afternoon, shelling out $3 billion for Beats Electronics. The massive acquisition is the largest in Apple’s history, and includes the entire Beats headphone and audio equipment line, as well as the company’s somewhat struggling online music service, Beats Music.
Apple was originally rumored to have considered a $3.2 billion price tag for beats, but cut the number to an even $3 billion after performing due diligence. The company will reportedly pay $2.6 billion in cash and $400 million in stock.
The move adds an instant boost for Apple in the hardware department, adding some cache to its product line, as well as a viable alternative to its critically maligned EarPods. Once the deal is finalized, Apple will have its choice from a heap of stylish cans to package with the iPhone, which has seen a major dip in growth rates in recent years.
However, it’s not just about Beats hardware, or even its fledgling music service. Along with all Beats Electronics assets, Apple is also gaining an immeasurable quantity of musical prowess through the deal, in the form of two new employees: Beats co-founders Dr. Dre and Jimmy Iovine. The pair will add some much needed leadership — not to mention street cred — to Apple’s board room, as the company has struggled to adapt to the ever-evolving music industry as of late.
Jimmy Iovine brings an extremely impressive resume, with a career in the music industry that has spanned several decades in and out of the studio. While helping to reinvigorate the headphone industry with Beats, Iovine is currently chairman of multiple music labels under the Universal Music Group umbrella, including Interscope, Geffen, and A&M records. The hitmaker and star producer has a litany of huge artists on his rap sheet, including Eminem and Lady Gaga, as well as stalwart industry legends like John Lennon, Bruce Springsteen, Tom Petty, Dire Straits, and U2. Iovine will reportedly leave Universal Music Group when his contract expires at the end of 2014 to become a “special adviser” to CEO Tim Cook.
“I’ve always known in my heart that Beats belonged with Apple,” Iovine said in a Beats Music blog Wednesday. “The idea when we started the company was inspired by Apple’s unmatched ability to marry culture and technology. Apple’s deep commitment to music fans, artists, songwriters and the music industry is something special.”
Apple CEO Tim Cook showed equal enthusiasm on the blog. “Music is such an important part of all of our lives and holds a special place within our hearts at Apple,” he said. “That’s why we have kept investing in music and are bringing together these extraordinary teams so we can continue to create the most innovative music products and services in the world.”
iTunes has seen its grip on the market slip in recent years as streaming services like Spotify, Pandora, and Beats Music have gained favor over digital downloads. But Beats Music has its own struggles. A leaked report on the service’s dismal subscription numbers, which tops out at around 111,000, is thought to be a major reason Apple cut its price by $200 million. Compared to Spotify’s 10 million paid subscribers, the service will have some major catching up to do under the gaze of its new owner.
Iovine and Cook have reportedly been good friends for years, making the match all the more natural. As for Dre’s part in the story, the rap star, producer, and music mogul will also serve an advisory role for the Cupertino giant. As The Wall Street Journal reports, Dre (aka Andre Young) will do “as much as it takes” for Apple, while continuing to work in the industry. Iovine and Dre will reportedly be working both on and off campus for Apple’s electronics and music-streaming divisions, while also serving as ambassadors of sorts for Apple, attempting to help merge the realms of technology and entertainment.
Apple will also keep the Beats brand, which means a bitten-into Apple won’t replace the Beats “b” logo that gleams so prominently on the exterior of the company’s many products. The move indicates deeper intentions for Apple’s acquisition of Beats Electronics, going beyond the products and the people: It speaks to the aspect of “cool.” When it comes to audio gear, Beats has it — especially with young people — and Apple wants it.
You can’t tear your eyes from your iPhone these days without seeing an athlete, TV character, or movie star wearing Beats headphones in commercials, at sporting events, and on the street. Once the sale is finalized, which Mac Rumors estimates won’t be until next week, all those hip young stars and icons will be sporting Apple gear.
And that’s a premium for which Apple is willing to pay handsomely — $3 billion handsome.